How on-demand insurance will shake up the industry

On April 6th, The Wall Street Journal reported that a fintech startup called Trov (“fintech” refers to any technology innovation in the financial services industry) had raised $45 million to bring on-demand services to the property and casualty insurance market.

Trov is an interesting case of how digital technology is disrupting traditional insurance markets. Unlike traditional homeowners’ or renters’ insurance, which provides blanket coverage, Trov enables customers to insure individual items “with the swipe of a credit card” and without talking to anyone.

At this time, Trov insures only consumer electronics and photography equipment, but they intend “to cover jewelry, sporting goods and other property that can be priced reliably.”

What are the implications to the insurance industry?

The CEO, Scott Walchek, sees his company unbundling coverage for single items the way Apple unbundled music albums with iTunes. If that is indeed the case, it would precipitate a disastrous decline in the insurance industry’s total revenue.

For comparison, total revenue of the U.S. music industry was $11.8 billion in 2003 when iTunes was introduced. Ten years later in 2012, total revenue had declined to $7.1 billion, down 39 percent. Trov may thrive, but traditional insurers will not.

Not surprisingly, Trov’s primary investors are three established insurance companies.

While acquiring disruptive startups is an essential part of an overall innovation strategy for any established firm that can afford it, it’s not enough. It’s impossible to acquire all the latest greatest technologies. Companies must drive organic innovation and growth as well. Even Google with tens of billions of dollars of cash on hand for acquisitions is driving innovation internally, too.

What can insurers (and all of us) learn from this?

There are a number of significant hurdles that traditional insurers must clear to succeed at innovation, such as:

Acquiring new skills and capabilities in such things as digital technology and dynamic pricing

Regulatory hurdles

Understanding customer needs

One hurdle that is unnecessarily hindering innovation, however, is the misbelief that customers cannot tell us what they want. This misbelief keeps innovation a mysterious hit or miss event when, in fact, it can be executed as a predictable business process.

Customers can tell us what they want as long as we ask them what they want to accomplish rather than asking them for solution specifications. A skilled interviewer asking the right questions can easily identify that there is a segment of insurance customers who want to insure only a few items rather than pay more for blanket coverage.

The essential questions that every business leader must ask customers to determine are:

Why are you buying our product/service? What does it do for you?

What objectives does it enable you to accomplish?

What problems does it help you to prevent or resolve?

What metrics do you use to measure success?

Because customers can provide the answers to these questions, companies can uncover important unsatisfied needs, unmet needs that are opportunities for innovation. This is how leading companies are driving innovation and growth.

Despite claims to the contrary, consumers’ needs for insurance have not changed much over the decades. People still want to protect themselves from financial loss that could occur from the theft or damage of personal property.

What has and will continue to change, however, are the solutions that insurance companies develop to help customers accomplish their objectives. Solutions continually get better and better at satisfying consumers’ needs.

The only way for traditional insurers (and all of us) to thrive in this environment of tumultuous change is to relentlessly focus on helping target customers get their tasks done better than the competition.

Customers don’t care if the solution is a product, service, or technology; they just want to get their tasks done. As Theodore Levitt pointed out many years ago, every business must define its purpose according to the customer needs it satisfies, not the solutions it sells.